Positive opening on Monday likely

The benchmark indices took a hiatus from two weeks sharp decline. The Nifty gained by 405.75 points or 2.65 per cent. The BSE Sensex is up by 2.4 per cent. The broader market indices, Nifty Midcap-100 and Smallcap-100, also advanced by 2.2 per cent and 1.8 per cent, respectively. Only the Nifty Metal index closed lower by 2.7 per cent. All other sectoral indices closed with decent gains. The Nifty Auto index up by 6.9 per cent, is the top gainer. The Bank Nifty, FMCG, IT, and Pharma closed 2.5 to 4 per cent higher. Though the market closed higher, the FIIs continued to sell the equities. They sold Rs.13,831.38 crore last week. During this month, they sold Rs.53,600.40 crore worth of equities. The DIIs bought Rs.41,983.47 crores this month.

The Nifty oscillated in the 558.15 points range and formed an inside bar on a weekly time frame. It is still below the 10 and 20 weekly averages, and they are in a downtrend. The Weekly RSI is bouncing from the support and is above the 40, which is a positive sign. But, it is a common sign of relief rally in the bear market. The 100 week moving average acted as support for the last two weeks. Currently, it is placed at 15358. On a daily chart, it is above the short-term average of 8 EMA. The RSI is also above the 40 zone. It retraced 34 per cent of the prior downtrend. On a lower time frame, the price pattern looks like a Head And Shoulders and an ascending triangle. For a definitive breakout, the Nifty needs to close above the 15750.

A positive opening on Monday is possible because a spurt in most of the global equities bounced over two per cent. The question is, will this bounce is sustainable? We will be known next week whether it is just a technical pullback within the broader downtrend. Generally, the retracements in the bear market do not extend more than 50 per cent of the prior swing. That level is at 15989, which is in the gap area. As mentioned earlier, the Nifty needs to close above the 15799 (38.2 per cent retracement level, and 15886, the 13th June gap day high. Only if these levels are taken out the gap can be filled, and the 61.8 per cent retracement is a reality. The gap area resistance and the 61.8 per cent retracements are at the same level at 16178. We cannot forecast more than this for now. As stated earlier, "Countertrend rallies in bear markets can be usually described as sudden, severe and seductive. They happen suddenly, with the market making new swing lows one day and then ripping back to the upside immediately after. Once this sudden influx of buyers has done their buying, the market sort of wakes up to the fact that conditions really haven't changed much in the last couple of weeks. All of the headwinds that have caused stocks to broadly decline." We can expect that the Nifty upside movement is capped at 15989 and 16178. At the same time, Monday's first-hour high is also crucial for the bulls. A gap opening which sustains the gains are important for the relief rally. In any case, the Nifty close below the opening level will be a sign of exhaustion from the relief rally. It is better to avoid trading at the open. A close below 15600, next week will resume the downtrend.

As the monthly derivative expiry is scheduled for next Thursday, volatility will play a major role. The data shows that the resistance is at 16000 and the support is at 15500. Overall, the market is to open positive and needs to sustain at higher levels. The stock-specific activity will be in focus. Select the stocks which have high relative strength. Be with cautiously optimistic.

(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)